Some Fed officials worry inflation will stay below their target

Some Fed officials see an "appreciable risk" that inflation remains below their 2% target, according to the minutes of their January meeting released on Wednesday.

Wall Street has been focused on inflation since that meeting. Concerns about it — and higher interest rates — helped plunge the stock market into a correction.

The Fed was otherwise upbeat on the economy, and expects tax cuts to support growth.

Some Federal Reserve officials think there's a good chance that inflation remains below their 2% target, according to the minutes of their most recent meeting released on Wednesday.

At the January 30-31 policy meeting, which was the last under former Fed Chair Janet Yellen, the Federal Open Market Committee left interest rates unchanged, as expected. But its statement updated the language on inflation, indicating that the Fed expected prices "to move up this year."

The minutes showed there was more nuance to the discussion. Some members were worried that the pace of economic growth could tighten the economy faster than expected, thereby accelerating inflation.

"However, some participants saw an appreciable risk that inflation would continue to fall short of the Committee's objective," the minutes said. "These participants saw little solid evidence that the strength of economic activity and the labor market was showing through to significant wage or inflation pressures."

Inflation has been investors' focus since early February, when stocks plunged into a correction. The sell-off was partly triggered by a report that showed faster-than-expected wage growth. And in another sign of inflation, the consumer-price index for January increased by more than expected.

These events weren't captured in the Fed's minutes. Still, investors were reading them for more information on how FOMC members were thinking about inflation, and how much they could raise interest rates to combat it.

The meeting took place after the Republican tax act was finalized, and so investors were also reading for the impact of this fiscal stimulus on the Fed's forecasts for the economy. The Fed listed the tax cuts among factors that were "likely to support economic growth." They also expected consumer spending to continue to improve, a healthy jobs market, and increased household wealth for those who own assets including stocks and houses.

For these reasons, they updated their description of how often they'd raise rates to indicate "further gradual increases."

FOMC member projections on the so-called dot plot in December showed that they expected to raise interest rates three times this year. According to implied probabilities on Bloomberg, traders see a 100% chance that the first hike would come at the March 20-21 meeting, when Fed Chairman Jerome Powell holds his first press conference and new economic forecasts are released.